The Mortgage market continued its slowdown in May, with year-on-year
growth in the value of total mortgage loans outstanding slowing once
again from 21.9% in April to 20.6% in May. Whilst it used to be fashionable
to attribute the slowdown to the residential component of the mortgage
market, these days it must be said that the slowdown is more broad-based.

Indeed the residential mortgage market has the dominant influence on
the overall weakening trend because of its sheer size, with residential
mortgage loans accounting for about 80% of the total value of the countrys
mortgage book. In April, year-on-year growth in residential loans recorded
20.8%, two percentage points down on the 22.9% of the previous month.

However, the value of outstanding commercial property mortgage loans
is also growing slower these days at 27.3% as at April, and although
this more volatile number is up on the previous few months, it is sharply
down from its 41.6% peak late in 2006.

If one takes a look at new loans granted, it is clear that the Monetary
Policy Committee of the SARB is putting it rather politely when it suggests
that the economy has been responding to rising interest rates. In the
first quarter of 2008, new residential loans granted showed negative
growth (decline) in value of -16.7% year-on-year, while new commercial
loans fell in value by a massive -61.3%.

One can also examine new mortgage loans according to application,
and one also sees negative growth across the board, i.e. whether it
be loans on existing buildings, for construction of buildings or on
vacant land.

The effect of this broad-based slump in new loans granted, since back
in last year, has been to take the value of loan payouts into negative
growth in the first quarter of this year. Capital re-payments on loans
have been catching up with payouts, and all of this suggests that the
growth in value of mortgage loans outstanding is set to decline steadily
for some time to come.

The negative impact of further rate hiking in April and June still
has to be fully reflected in the figures, as does the lag time between
new loans granted and trends in loans outstanding.

Given the spectacular slump in new loans to date, it is possible that
the value of mortgage loans outstanding will reach negative growth territory
in 2009